This is the first in a two-part series on China’s growing involvement in the metaverse. Part two, on the risks of a bubble, can be found here.

If the first generation of the internet was designed around personal computers and the second around mobile devices, some are predicting the internet’s third generation will be based in the metaverse. Much of China’s economic growth over the past 10 years has come from the application of mobile internet technologies, as the country’s firms reaped the advantages of being able to leapfrog the PC internet era and create mobile-first software without having to worry about legacy users. Today, many of China’s largest listed companies — including Tencent, Alibaba, and JD.com — are essentially mobile internet companies.

Leapfrogging is no longer on the table, but that hasn’t stopped these firms from angling to get a cut of the next big thing. China’s big three mobile service providers — China Telecom, China Mobile, and China Unicom — all launched new projects related to the metaverse in 2021. Major tech companies Alibaba, Baidu, NetEase, and Bytedance also announced plans in late 2021 to either launch their own metaverse projects or invest in metaverse companies. Some of these efforts even predate the latest craze. As early as 2020, Tencent floated the concept of an “all-real internet,” a fusion of the virtual and real worlds, and invested in metaverse pioneer Roblox.

It’s not just companies, either. Shortly after the metaverse concept started making waves around the world last October, Shanghai authorities released a “14th Five-Year Plan for the Development of the Electronic Information Industry,” which named the metaverse a development focus. This was the first time that a local Chinese government included the metaverse in a Five-Year Plan. Then, on January 7, Beijing municipal officials announced that the country’s capital would construct a supercomputing center, promote the formation of a new metaverse innovation consortium, and explore the creation of a metaverse industrial cluster.

Other regions are also trying to secure a piece of the virtual pie. Local governments in developed eastern provinces like Zhejiang and Jiangsu have held metaverse-themed industrial development seminars or enterprise symposiums — as has the relatively impoverished southwestern province of Guizhou, which is already in the middle of a campaign to turn itself into a “big data” hub. Meanwhile, a government work report published by the central city of Wuhan outlined the construction of five digital economy industrial parks in part to promote the integration of the metaverse, cloud computing, and blockchain with the real economy.

All this hype should come as no surprise. Over the past decade, global economic growth has been stagnant, and many countries have experienced economic slowdowns. Both the United States and China maintained steady growth, however — a fact that is closely related to the rapid development of their digital economies. Now, the consulting firm PwC estimates extended reality technologies could contribute an additional $1.5 trillion to the global economy by 2030.

And that’s only the beginning. A “true” metaverse industry is probably still a decade or two away, and even boosters have yet to reach a complete consensus on what exactly it is or will be. Given how much is still undecided, why have Chinese enterprises and local governments been so enthusiastic about chasing the metaverse this early in the development cycle?

For local officials, the benefits are obvious. Taking the lead in a new field everyone is talking about is an easy way for them to show how seriously they take new technologies and new industries, and that they are capable of learning and willing to innovate. It also sends a signal to the outside world that their jurisdiction is open for business.

And by packaging current key priorities like the development of local industrial clusters under the metaverse umbrella, governments can capitalize on the buzz to achieve other goals. For example, boosting the metaverse can simultaneously promote the development of related industries — and key national and local priorities — like artificial intelligence and cloud computing. There are other advantages, too: Local museums and exhibition centers can attract new visitors curious about the trend by advertising their use of metaverse-adjacent technologies like virtual hosts and guides.

Companies have similar incentives. By wading into the metaverse, they can boost their valuations on capital markets by associating themselves with the hottest new trend. Capital markets are always on the lookout for a good story, and in the second half of 2021, several listed companies using the metaverse label saw their share prices surge — a trend which is expected to continue in 2022.

Getting involved in developing the metaverse at an early date also helps when it comes to deciding who gets to regulate the industry. In the early stages of an industry’s development, the rules are often not very transparent or unified, but those who are first to the table have a greater say in their ultimate content.

Setting the rules of the metaverse is not going to be easy. In many ways the current virtual world is incompatible with, or at least highly vague about, many legal, ethical, cultural and regulatory norms of the “real” world. For example, if a problem arises between someone in America and someone in China in a part of the metaverse created by a Japanese corporation, which country’s laws and regulations should apply? Jurisdiction based on geographical location is hard to enforce in the metaverse.

Meanwhile, companies like Meta — whose rebrand from Facebook helped kick off the metaverse craze last Fall — have already floated the idea of issuing their own currencies. The impact of such moves, combined with the vast amounts of user data at their disposal, could pose threats to national sovereignty and security around the world.

On a more local level, China should be careful not to use metaverse development purely as vehicle for pursuing its other industrial goals like blockchain, VR/AR, and cloud computing. And, early though it is, the country should start promoting standards and coordinating efficiency for interconnectivity among its enterprises. The essence of the metaverse is interconnectivity; otherwise, we’re just talking about a series of isolated gaming or social platforms. For example, a metaverse alliance launched by South Korea's ICT ministry has more than 500 member companies and organizations, including Samsung, KT Corporation, SK Telecom, and Hyundai Motor Company. China currently has no equivalent organization.

Finally, regulators should ensure that the current generation of mobile internet giants don’t use their competitive power to wipe out new entrants. At present, the metaverse industry is dominated by a handful of big players. In the long run, this kind of oligopoly market structure will hinder innovation. As such, it is important to encourage the development of startups as well as micro- and small-sized enterprises and crack down on monopolistic behaviors such as walled gardens and forced mergers.

As Matthew Ball, a venture capitalist, has argued, “It was hard to envision in 1982 what the internet of 2020 would be.” We don’t know what the metaverse will look like in 40 years, but that doesn’t mean we can’t try to make it a more equal, fair, and accessible place for all.

This article was co-authored by Li Jing, a Ph.D. student at Renmin University of China.

Translator: David Ball; editors: Cai Yiwen and Kilian O’Donnell.

(Header image: Shijue Select/People Visual)